Valuing properties

[SriLankanCat]

IM in the process of buying a property at the moment. The bank did a valuation as did my own valuer, they both came up 20K short in the price. SO now im thinking that im overpaying. however there is no way the vendor is gonna come down on the price, i really want the property but at the same time only for the right price.

Has anyone had any experiences like this? wat have u done?

FYI my property price was $335K, and they valued at $315K. Personally I reckon its around $325K. This is for a brand new 2 bed villa, with a potential for a 3rd bedroom. The valuer said a 3 bedder would be around $340K. This is in Girraween in Western Sydney.

The thing that concerns me is that they use comparable sales of proeprties in the area. If the properties were identical to mine then fair enough, but my villa is well fitted ut, ducter A/C, ducted vacuum, video intercom, potentia lfor 3 bedder, downlights, etc. The other properties wouldnt ahev these features. Ok these features may not cost a lot, but hey they certainly increase the quality of the villa.

 

[skipper kelly]

If its an investment then keep looking around, they arent often wrong. If its to live in then go for it. It obviously suits what you want so IMO quality and comfort are more important than getting the absolute best deal. If you plan on selling and moving up in 5 years then you have to decide money V quality of life. To me quality of life is always first but thats the decision you have to make.

Im no expert but Im not sure if the valuers look too much at fittings etc. As far as I know the valuation is about size and location.

 

[Mastablingbling]

If both valuers are coming up with the same number, then thats it.

Subjective, definitely.

 

[SriLankanCat]

Yeha i am thinking whether its worth it

 

[bunsen burner]

Has anyone had any experiences like this? wat have u done?

You need to learn how to negotiate. This is your perfect opportunity to learn and test your skills because as Skippy said, there's no emotional attachment. You just want a place that is attractive to renters and future buyers (at the right price). The more attractive it is to future buyers, the higher rate of growth you get (say compared to the block next door etc).

Valuers are pretty close to the mark. It's their job and reputation. Banks are conservative. My gut feeling on this is similar to yours - it's worth a little more than the valuation - but not $335.

It's all about your understanding of negotiation and ability to use these principles.

 

[FrediKanoute]

How long has the property been on the market? If its been on the market a while then its likely that the vendor's valuation is not realistic and you're best off moving on. Things to try if you want to negotiate though are:

1. reduce the settelment period so that rather than settling in 90 days you settle in 30 days;
2. Withdraw you offer and if the property is still available in a months time put in a lower offer at the price (ie $325k) you believe it is worth.

One thin to note with newbuilds/newly renovated properties is that they have a premium attached to them, whereby people will pay a little more if it is all nice and new and as a consequence the price has a tendency (unless the area has a short supply of properties) to rise more slowly than established houses.

 

[coxon]

if the bank valuation came up $20k lower, (eg. about 6% off), i reckon the valuer has already pushed it to the max by giving you 315k... most of the time if it is within 10% of the contract price, the valuer/bank will put it through for the contract price... but because the contract price of 335k was way over the top, they didnt give it to you...

if your independent valuer came in at the same figure, i'm pretty sure u may be over-paying... i had a quick look at 2 bedders in girraween, and most of them are around the high two's to early 300k...

whats the bit about 'potential for 3 bedroom'... would it involve the simple creation of an internal gyprock wall, or an actual external structural addition? if its the latter, its probably b.s by the agent... as you'd require council approval, and owners corporation approval, and also maybe getting the strata plan altered/amended...

as other posters have said, its best to use this to negotiate with the seller...

all the best cat..

 

[Squall]

i've always seen bank valuations as being lower then normal or real estate valuations. i suppose the banks do it to be conserative.

Not sure if this is right, i got told if the bank had to take away the house off the customers (ie customer not making repayments or they have done a runner & left the country for good) they try & sell it asap meaning they usually sell it a little bit less then what they could get if they were patient in selling for a better offer. So thats why they may value it lower becuase they may not get back the same price as real estate valuation or prices in property may drop. Not sure less risks for the bank.

 

[Tim the Toolman]

I know for a fact that the bank valuers have been requested to pull back on vals because of the current cash crisis.

If you got a real estate agent to val the house you'd get a very different figure.

A Valuer's job is to give the banks a price for the house that they could get in a mortgagee sale yet your insurance will actually value the house for 30k+ over what you pay for it! Go figure?

Everyone will find val's are down all around Australia for the time being but it's nothing to be concerned about - do this: go find a similar property for the same price and if you can find one I'll buy you a beer!

 

[motleydon]

Stamp duty and legals will add another 20k.

A third bedroom 30-50k.

Add those to the purchase price and you've significantly over capitalised against a comparable 3 bedder at 345k.

Potential that comes from capital improvements isnt worth much. Potential that comes from re-zoning or sub-division is valuable. In fact pretty much ALL of the growth in a property comes from the land value. Capital improvements depreciated in value. A building depreciates around 1-2% pa (50-100yr life). Fittings, fixtures etc depreciate at around 10-20%pa (5-10yr life).

For example. 40yrs ago you spent say 15-20k on a block of land and about the same on the house. Today the land is worth 500k and the house 10k, if that.

Capital improvements can make a big difference in a rapidly rising market, where a premium gets loaded in, mostly driven by the booom mentality of anxious buyers. Easy money is gone now (prolly reflected in the valuation bias) and a lot of the heat is gone from the market.

Having said all that, property is a highly imperfect market. SOme areas will go up a lot at the same time others are flat or declining. Streets can differ as too can types of housing. Do your research, look at LOTS of properties, makes offers below market value and wait for a motivated vendor to come to you. Get you valuations done before making a written offer, otherwise put a 'subject to finance' clause inthe offer that gives you an out. Make sure you specify the amount to be borrowed, the rate and lender in that clause. Preferably an amount that you know you cannot get so you can bail without grief from the agent and/or vendor, if YOU want to.

Market dynamics have shifted, shoe is on the other foot and buyers now have the negotiating advantage.

 

[FIGJAM]

I know for a fact that the bank valuers have been requested to pull back on vals because of the current cash crisis.

A Valuer's job is to give the banks a price for the house that they could get in a mortgagee sale yet your insurance will actually value the house for 30k+ over what you pay for it! Go figure?

Everyone will find val's are down all around Australia for the time being but it's nothing to be concerned about - do this: go find a similar property for the same price and if you can find one I'll buy you a beer!

Mate, I am a valuer and do residential for all four major banks plus a heap of other larger institutions and I can tell you that that is completely wrong!

As independent valuers, we are still expected to value the property as high as we possibly can. Calls of conservatism is what we have to deal with daily, but the simple check to keep us from being conservative (reflective of laziness IMO) is that firms who perpetually underval will see the work go elsewhere.

The only time conservatism is warranted in independant valuations in my opinion, is when the property is so unique that similar sales are practically non-existant. Given that we can get taken to the High Court and sued for our opinion, our report better be seriously arguable.

Banks may be the ones calling for lower loan to value ratios internally, but they have literally no say of the numbers we give them.

Secondly, we are asked to give the actual market value, not what it would sell for in a mortgagee in possession sale. One reason for this is that it is the banks who need to exercise prudent lending practices (which becoming arguably rare) and should adjust the LVR accordingly. But the main reason is that MIP sales are as rare as hen's teeth, so there's nothing to hang your hat on comparability-wise.

The primary reason why people think valuers are conservative, is because they overrate their own home, or alternatively have had an agent come through who has blue sky to work with in order to prick their interest (unfortunately for us, in the current Melbourne market, the real estate agent's optimistic pitch is often closer to correct...quite often at the surprise of the quoting agent!).

Vals are up in Melbourne and the cash crisis, whilst we aren't ignorant about it, really has no effect on our work. All the affordability issues, including rates and rate movements, are the bank's responsibility.

As for the original question in this thread, I don't know the values in Western Sydney. In relation to the original post, all of the fixtures and finishes do have an afftect on value (as do all variables). There is a cap on the affordability for each property type though, no matter what superior attributes they may have (thus moving into "overcapitalisation" territory).

What interests me the most is the possibility for extension / exra bedroom in a villa unit. Maybe i have been working the inner city too much, but I've never seen a substantial main building extension in a villa unit situation.

I'd like to think both valuers have had sufficient consideration for all variables when arriving at their assessment.

 

[Jabso]

Interesting that accountants are very conservative and may rely on professional valuers who use the opposite approach. However I guess it only applies to residential properties.

 

[Tim the Toolman]

Mate, I am a valuer and do residential for all four major banks plus a heap of other larger institutions and I can tell you that that is completely wrong!
...
I'd like to think both valuers have had sufficient consideration for all variables when arriving at their assessment.

But not new homes?

Tell me why would a Commonwealth Bank Valuer give a property 40k discrepency from a Westpac Valuer?

How's this for a comment from CBA Valuer last year (2007) "Block is too close to a major arterial therefore devalues the price of land here." What the f..k? That ought to be a plus not a minus surely?

If you say you do residential val's does that mean established only or does that include new homes? Before I defend my comments I need to establish which panel you are dealing in?

 

[FIGJAM]

But not new homes?

Tell me why would a Commonwealth Bank Valuer give a property 40k discrepency from a Westpac Valuer?

How's this for a comment from CBA Valuer last year (2007) "Block is too close to a major arterial therefore devalues the price of land here." What the f..k? That ought to be a plus not a minus surely?

If you say you do residential val's does that mean established only or does that include new homes? Before I defend my comments I need to establish which panel you are dealing in?

If that is an actual word for word quote, then it is a shit comment!

I would argue though that it'd be pretty clear that some properties can be adversely affected by freeway noise, even though ready access to the freeway may be a plus for the area. Being set back from the freeway is a plus, if you have roughly the same access to the on-ramps (wouldn't you agree?).

There are a miriad of variables that go into valuations. Firstly, some bank valuations haven't even been done by a human. Was Westpacs undertaken by a firm, or were they providing an "in-house val (possibly computers) or were they simply accepting a contract based upon affordability/low LVR? Was it a house and land package (can throw valuers off due to different ways of looking at it)?

I'm currently doing a job whereby I know I am 10% over what a bloke from another firm is doing and I understand where he is coming from, but I take a different approach. Not all properties are bread and butter. I wish they were because I'd make a lot more money, or have more time to enjoy myself...or I'd be out of a fricken job because the banks would just run computer models!

 

[Z_K]

Much time for the application of religious theory, meditating and listening to Tool and Radiohead valuing properties, Figgy? Wouldn't have ****en picked that in a million years!!

We just had our place valued by ANZ after re-financing with them, and they upped my prediction on the loan application by 20k. If they are correct, our place sits 75k in value above what we paid for it 18 months ago. And my work has included such monstorous home reno's as some paint. And I knocked down the shed. Surely he's made it up.

 

[SriLankanCat]

WHat does everyone thing about Torrens title? How much more value does it ad to a property?

im looking at a 2 bed villa in girraween, torrens title, 5 years old. Ducted A/C. part of a duplex. nice quiet street. 1 bathroom. Separate toilet and bathroom. 1 garage and 1 extra carspace. small backyard. average size lounge and bedrooms
The vendor wants $330K.

 

[Tim the Toolman]

If that is an actual word for word quote, then it is a shit comment!

I would argue though that it'd be pretty clear that some properties can be adversely affected by freeway noise...

There are a miriad of variables that go into valuations. Firstly, some bank valuations haven't even been done by a human. Was Westpacs undertaken by a firm, or were they providing an "in-house val (possibly computers) or were they simply accepting a contract based upon affordability/low LVR? Was it a house and land package (can throw valuers off due to different ways of looking at it)?

Yeah the guy was a wacker and then again, we had to go pay for another val. The block was actually in Greenvale, nowhere near an actual freeway to hear from it?!

The deals we deal with are your high 97LVR's so if you're doing normal <95LVR you will know why the val's are tight for the deals that I have been seeing. It's purely new home stuff and can't really be compared to established however I'm helping my niece sell her house and the bank's val is coming in at 255k for a property that has been bought for 295k with 5 agents appraising at 315k. That's a pretty big discrepency!

 

[FIGJAM]

Much time for the application of religious theory, meditating and listening to Tool and Radiohead valuing properties, Figgy? Wouldn't have ****en picked that in a million years!!

I don't necessarily apply my opinion on the spiritual issues, although I do try and continue to read about it every night before sleep. Tool are ironically very spiritual, yet continue to play the "devil's music" . Life is full of contradictions!

We just had our place valued by ANZ after re-financing with them, and they upped my prediction on the loan application by 20k. If they are correct, our place sits 75k in value above what we paid for it 18 months ago. And my work has included such monstorous home reno's as some paint. And I knocked down the shed. Surely he's made it up.

The market is booming mate.

 

[FIGJAM]

Yeah the guy was a wacker and then again, we had to go pay for another val. The block was actually in Greenvale, nowhere near an actual freeway to hear from it?!

The deals we deal with are your high 97LVR's so if you're doing normal <95LVR you will know why the val's are tight for the deals that I have been seeing. It's purely new home stuff and can't really be compared to established however I'm helping my niece sell her house and the bank's val is coming in at 255k for a property that has been bought for 295k with 5 agents appraising at 315k. That's a pretty big discrepency!

Mate, I wish I could talk up all valuers, but not all of em are good.

There are a number of issues with new supply. House and land packages for example, can typically get about 10% more than a near new property with identical attributes will resell for.

You state that you can't compare it to existing stock. Unfortunately I see this as quite debatable and I can see two different points of view. People are prepared to pay a premium for a new house, as they would like to effectively design the house to their own specifications and finishes. In effect, this does not go against the market value definition.

However, some firms pre-empt what would likely happen if and when the property was offered for sale through a local real estate agent. Buyers would possibly (or even probably) not pay that premium, as it is not necessarily 100% catered to their tastes. Also, the marketing period for a resale through a local agent is typically shorter than for a developer/builder who has multiple lots and a long period in which to attain and move their stock, thus being able to achieve to the upper end of the range.

The valuers that far out do have to deal with a far higher instance of foreclosures, so taking a more conservative approach is understandable to some extent.

 

[bunsen burner]

WHat does everyone thing about Torrens title? How much more value does it ad to a property?

im looking at a 2 bed villa in girraween, torrens title, 5 years old. Ducted A/C. part of a duplex. nice quiet street. 1 bathroom. Separate toilet and bathroom. 1 garage and 1 extra carspace. small backyard. average size lounge and bedrooms
The vendor wants $330K.

Torrens Title

Don't know how much it adds but I'd suggest a fair bit. No body corporates and you actually own the land rather than a share in a piece of land.

 

[FIGJAM]

I think you guys mean freehold title when compared with strata title.

A Torrens title is pretty much all titles over land (at least residential), including apartments and strata titles. The records are kept in a central registry (ie. in the leper colony...aka. Titles Office) and you essentially by that title and associated land rights.

There will be some abstract land ownership rights no doubt (some title free Crown Allotments for example), but pretty much any property most of us have to deal with will be registered under the Torrens title system.

Along with Coopers and the road to Melbourne, it's one of the few good things to ever come out of Adelaide.